Chart of the day AUDJPY risk of bearish breakdown

In our previous “Chart of the day” report dated on 10 August 2017, we had featured the AUD/JPY cross pair as it had an interesting bearish technical configuration setup. The AUD/JPY had tumbled as expected and hit our downside target/support zone at 85.90/65 (printed a low of 85.43 on 11 Aug 2017). Click here for a recap of our previous report.

Now, let us review the latest technical elements of AUD/JPY in light of a looming risk event across the horizon; the Jackson Hole Symposium that kick-starts on Thursday, 24 August and ends on Saturday, 26 August 2017.

This year symposium titled “Fostering a Dynamic Global Economy” where key central bankers will give key speeches and the market will pay close attention to ECB Draghi for hints on the sustainability of the on-going Eurozone economic recovery and the timing on the exit of ECB’s QE programme. For Fed Yellen’s speech, the focus will be on any concerns on the current lacklustre inflationary pressure seen in the U.S. despite a robust labour market and how the Fed is going to manage its balance sheet reduction programme for its trillions dollar worth of Treasuries and mortgage related bonds that it inherited during its QE programme. Both of them will be speaking on Friday, 25 August 2017.

Short-term technical outlook on AUD/JPY

Key technical elements

• Since its low of 72.53 printed on 24 June 2016, the AUD/JPY cross pair has been trading within a bearish “Ascending Wedge” with its lower limit now acting as a support at 84.40 (see daily chart).
• The daily RSI oscillator had tested and retreated from its corresponding resistance at the 54% level on 16 August 2017. It is now inching downwards and still has further potential downside before it reaches an extreme oversold level. These observations suggest that medium-term downside moment of price action remains intact (see daily chart).
• In the shorter-term, the AUD/JPY has continued to evolve within a bearish descending channel in place since 27 July 2017 minor swing high (see 1 hour chart).
• As seen from its recent minor low area of 86.00 on 18 August 2017, the cross pair has started to consolidate in a bearish continuation chart pattern configuration called “Pennant” with its respective lower boundary/support at 86.30 and upper boundary/resistance at 86.86 (see 1 hour chart).
• The key significant short-term resistance now stands at 87.05 which is defined by the upper boundary of the aforementioned short-term descending channel and the swing high of the start point of the bearish “Pennant” configuration.
• The next significant support rests at 84.50/40 which is defined by the lower boundary of the aforementioned short-term descending channel, the medium-term ‘Ascending Wedge” trendline support from 24 June 2016 low and a Fibonacci projection.

Key levels (1 to 3 days)

Intermediate resistance: 86.86

Pivot (key resistance): 87.05

Supports: 86.30, 85.54 & 84.50/40

Next resistance: 87.50

Conclusion

The AUD/JPY has started to trace out bearish technical elements that advocate a potential continuation of its impulsive downleg within its short-term downtrend in place since 27 July 2017 high.

However, the hourly Stochastic oscillator has almost reached an extreme oversold level which indicates that the cross pair may stage a minor rebound above the lower boundary of its “Pennant” range pattern at 86.30 towards its respective upper boundary at 86.86 with a maximum limit set at the 87.05 key short-term pivotal resistance. Thereafter, a break below 86.30 is likely to trigger a bearish breakdown from its “Pennant” range configuration for a further potential drop to retest the 11 Aug 2017 minor swing low area of 85.54 before targeting the next support at 84.50/40.

On the other hand, a clearance above 87.05 may negate the preferred bearish tone to see a squeeze up towards the next resistance at 87.50.

Charts are from eSignal

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